NCAT Building Disputes: 5 Common Misconceptions Explained by Home Building Dispute Lawyers

1) All home building claims need to be referred to NSW Fair Trading prior to commencing proceedings

While Section 48J of the Home Building Act 1989 (NSW) (Act) typically requires that an application to the NSW Civil and Administrative Tribunal (NCAT) must be rejected unless the subject matter of the claim has been investigated by NSW Fair Trading, this is not the case for all claims.

The following claims may be accepted by NCAT even if the matter has not been referred to NSW Fair Trading:

• Claims that are appeals against a decision of an insurer under a contract of insurance required to be entered into under the Act;
• Claims for recovery of a debt by a contractor;
• Cross-claims;
• Claims where the time for lodging a claim is due to expire within 3 months;
• Claims involving unlicensed contractors;
• Claims by a trader against a subcontractor regarding defective work;
• Claims against owner-builders regarding defective work;
• Claims involving companies that have been de-registered;
• Claims against companies or individuals who have gone into administration, liquidation or bankruptcy.

2) If a homeowner can establish that the work performed by their builder is defective, they will succeed on their claim

It is often thought that the mere presence of defects in a builder’s work will entitle a homeowner to succeed on their claim. This is not the case.

As a general legal principle, damages for breach of contract are assessed by reference to what will put the applicant in the position it would have been in, had the contract been performed.

In the context of a contract for the performance of residential building work, this usually means that where there is defective or incomplete work a homeowner can obtain:

• a rectification order; or,
• a money order for payment of the cost of rectifying defective work and completing incomplete work (as this gives the homeowner the means to put themselves in the position they would have been in, had the contract been performed).

However, in order for a homeowner to obtain either, they must demonstrate that the rectification work in question is necessary and reasonable.

If the work is not necessary and reasonable, the homeowner may – despite having established the existence of a ‘technical’ defect – be left to prove that they have suffered loss on some other basis, such as a reduction in the value of the property, or a loss of amenity – or otherwise fail on their claim if they cannot prove such losses.

3) Security of payment legislation doesn’t apply to residential building work

The Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) applies to ‘owner occupier construction contracts’ entered into after 1 March 2021.

An ‘owner occupier construction contract’ is a construction contract for the carrying out of residential building work within the meaning of the Act on premises that the party for whom the work is carried out resides in (or proposes to reside in).

However, a builder is not entitled to a progress payment under the SOP Act if the construction contract:

• does not comply with Section 4 of the Act (which deals with unlicensed contracting); or,
• involves construction work that is residential building work done in contravention of Section 92 of the Act (which deals with the requirement for a builder to obtain homeowners warranty insurance).

4) The unsuccessful party will always pay the costs of the successful party in NCAT proceedings

Home building claims are heard in the Consumer and Commercial Division of the NSW Civil and Administrative Tribunal (NCAT).

The combined effect of Section 60 of the Civil and Administrative Tribunal Act 2013 (NSW) (NCAT Act) and Rule 38 of the Civil and Administrative Tribunal Rules 2014 (NSW) (Rules) is that the Tribunal may award costs in proceedings in the Consumer and Commercial Division of the Tribunal:

1. if the Tribunal is satisfied that there are special circumstances warranting an award of costs (s60 of the NCAT Act); or,
2. without special circumstances, where the amount claimed or in dispute in the proceedings is more than $30,000 (r38(2)(b) of the Rules).

Costs are discretionary. There is no absolute rule that a successful party is to be compensated by the unsuccessful party. For example, if a homeowner has obtained a money order in their favour but nevertheless had a “mixed success” – where they have succeeded on some issues and the builder has succeeded on others– it is common for the Tribunal to award the successful homeowner only a fixed percentage of their costs, as agreed or assessed.

5) Interest on defective works can be claimed

As noted above, home building claims are heard in the Consumer and Commercial Division of NCAT. NCAT’s powers are limited to what is conferred by specific legislation for each division, however NCAT does not have jurisdiction to award interest on home building claims.